Last Modified: Wednesday, January 2, 2013 at 1:33 p.m.

"It was mass chaos last week," Cason said. "A short sale is four times the work of a normal closing, so this was nothing short of a frenzy."

Though threatened by the fiscal cliff, the popular tax deduction on forgiven mortgage debt was extended for another year in the tax deal Congress passed late Tuesday night. That is good news for Southwest Florida, where short sales -- a transaction in which lenders allow a home to sell for less than the value of the mortgage -- have played a key role in the recovery of the region's real estate market. They accounted for a third of all residential deals in Sarasota and Manatee counties during the third quarter, according to analyst RealtyTrac Inc.

The deduction, which had been set to expire on Dec. 31, has saved some of the region's struggling homeowners thousands of dollars over the past five years.

Because of the looming expiration, short sellers had rushed to close deals before missing out.

"It's going to help a lot of people who were scrambling," Roger Piro, the newly installed president of the Sarasota Association of Realtors, said of the extension. "There are many short sales and foreclosures that need to work their way through the system locally."

Under the 2007 law, homeowners do not have to pay federal income taxes on mortgage debt forgiven by lenders on short sales, foreclosures or loan modifications.

Such debt relief was previously taxed as income. But if the Mortgage Forgiveness Debt Relief Act had gone over the cliff, homeowners would again be paying taxes on the amount written off after a short sale or on the reduced principal of a loan.

"Short sales would have come to a screeching halt, and that is counterproductive to getting the economy and real estate back up and going," Cason said.

"It's a major victory, especially for those who are in the process of buying right now," said John Seebree, senior vice president of public policy at Florida Realtors. "If you had a contract on a property and it didn't close by Dec. 31, and suddenly everything changed, that would be in a difficult position to be in."

Piro recently handled a $450,000 short sale in which the canceled debt totaled $50,000. Not a large amount as those sales often go, he said, but the seller might have balked if he had to pay taxes on it.

"It still could deter people from wanting to go down that road," he said.

Cason said she has handled short sales in which the seller's forgiven debt was as high as $1 million.

"Values have gone down 40 or 50 percent, and it doesn't matter if the house is worth a couple million or a couple hundred thousand, they are still affected by the decline in the market," she said.

Some 12,000 real estate agents in Florida responded to a "call to action" from their trade group, contacting their congressional representatives and urging them to extend the tax deduction, Seebree said.

"That was our largest response," he said. "This was such a critical issue that we pulled out all the stops."

The National Association of Realtors estimated the tax savings from the exemption topped $1 billion in 2011.

Supporters had hoped for a two-year extension, which would jibe with the time frame that five major lenders are operating under to provide $25 billion in mortgage relief to homeowners under a national settlement. Short sales are a major component of that agreement, Cason said.

"If you had no extension, it would undercut the government's effort to resolve those cases," she said.

Seebree also was happy that the fiscal-cliff bill avoided any changes to the mortgage interest deduction that millions of taxpayers use to lower their income taxes.

That once-sacrosanct deduction has been targeted by some tax reformers, but the housing industry has insisted it is crucial to encourage home purchases.

<p>Sarasota real estate attorney Nancy Cason juggled a half-dozen short sales during Christmas week, hustling to beat a year-end deadline so homeowners could receive a substantial tax break.</p><p>"It was mass chaos last week," Cason said. "A short sale is four times the work of a normal closing, so this was nothing short of a frenzy."</p><p>Though threatened by the fiscal cliff, the popular tax deduction on forgiven mortgage debt was extended for another year in the tax deal Congress passed late Tuesday night. That is good news for Southwest Florida, where short sales -- a transaction in which lenders allow a home to sell for less than the value of the mortgage -- have played a key role in the recovery of the region's real estate market. They accounted for a third of all residential deals in Sarasota and Manatee counties during the third quarter, according to analyst RealtyTrac Inc.</p><p>The deduction, which had been set to expire on Dec. 31, has saved some of the region's struggling homeowners thousands of dollars over the past five years.</p><p>Because of the looming expiration, short sellers had rushed to close deals before missing out.</p><p>"It's going to help a lot of people who were scrambling," Roger Piro, the newly installed president of the Sarasota Association of Realtors, said of the extension. "There are many short sales and foreclosures that need to work their way through the system locally."</p><p>Under the 2007 law, homeowners do not have to pay federal income taxes on mortgage debt forgiven by lenders on short sales, foreclosures or loan modifications.</p><p>Such debt relief was previously taxed as income. But if the Mortgage Forgiveness Debt Relief Act had gone over the cliff, homeowners would again be paying taxes on the amount written off after a short sale or on the reduced principal of a loan.</p><p>"Short sales would have come to a screeching halt, and that is counterproductive to getting the economy and real estate back up and going," Cason said.</p><p>"It's a major victory, especially for those who are in the process of buying right now," said John Seebree, senior vice president of public policy at Florida Realtors. "If you had a contract on a property and it didn't close by Dec. 31, and suddenly everything changed, that would be in a difficult position to be in."</p><p>Piro recently handled a $450,000 short sale in which the canceled debt totaled $50,000. Not a large amount as those sales often go, he said, but the seller might have balked if he had to pay taxes on it.</p><p>"It still could deter people from wanting to go down that road," he said.</p><p>Cason said she has handled short sales in which the seller's forgiven debt was as high as $1 million.</p><p>"Values have gone down 40 or 50 percent, and it doesn't matter if the house is worth a couple million or a couple hundred thousand, they are still affected by the decline in the market," she said.</p><p>Some 12,000 real estate agents in Florida responded to a "call to action" from their trade group, contacting their congressional representatives and urging them to extend the tax deduction, Seebree said.</p><p>"That was our largest response," he said. "This was such a critical issue that we pulled out all the stops."</p><p>The National Association of Realtors estimated the tax savings from the exemption topped $1 billion in 2011.</p><p>Supporters had hoped for a two-year extension, which would jibe with the time frame that five major lenders are operating under to provide $25 billion in mortgage relief to homeowners under a national settlement. Short sales are a major component of that agreement, Cason said.</p><p>"If you had no extension, it would undercut the government's effort to resolve those cases," she said.</p><p>Seebree also was happy that the fiscal-cliff bill avoided any changes to the mortgage interest deduction that millions of taxpayers use to lower their income taxes.</p><p>That once-sacrosanct deduction has been targeted by some tax reformers, but the housing industry has insisted it is crucial to encourage home purchases.</p>